The policy measures taken so far in the Nordic countries aim at preventing bankruptcies and layoffs and developing policy measures to support liquidity and credit markets and to ease monetary conditions in general. In this document, we give an overview of the measures introduced in the Nordic countries. This is an update of Nordic Research – Update no 2: Policy measures in the Nordic countries, published on 24 March.
So far, there has been less emphasis on stimulating demand through large-scale fiscal easing but we might see more of this in order to support a strong recovery after the crisis. The Nordic countries all have strong public finances, strong credit ratings and wellcapitalised banks and all are well positioned to use fiscal policy in the crisis.
The Nordic countries are each different. Norway has an exceptionally strong fiscal position but its economy has exposure to both the COVID-19 outbreak and the oil price collapse. It is characterised by a large high-yield market. Sweden and Norway have been able to utilise their monetary policy and the currencies have depreciated, supporting competitiveness. In respect of credit measures, we highlight that Norway has reopened a NOK50bn government supported credit fund and the Swedish Riksbank has initiated a SEK300bn QE programme in government bonds, Kommuninvest, covered bonds and now corporate bonds. In Finland, the State Pension Fund will buy EUR1bn in commercial paper. It is difficult for the Danish central bank to engage in traditional QE due to the currency peg but, in our view, the new lending facility at -0.35% should be supportive for the bond market. All central banks have introduced liquidity measures to support market functioning, banks and corporates.
However, the new fiscal and liquidity measures have to be funded and Denmark, Sweden and Norway have published new supply outlooks for issuance of government bonds and Tbills and other funding sources. In particular, over the next couple of months, all four countries need to bridge a significant funding gap given the decline in tax/VAT income and measures that postpone and, in some circumstances, pay back old taxes/VAT to companies. For more, see Nordic Research – Overview of government bond supply, 17 April.
There is little doubt in our minds that the economic impact of the coronavirus and the measures taken against it is very large for the Nordic countries. However, after the introduction of harsh measures at the beginning of March, we have now seen the first steps towards reopening economies. In Denmark, kindergartens and schools for children up to fifth grade have reopened and small businesses such as hairdressers and typically health services with one-to-one contact can now reopen. In Norway, kindergartens have also reopened and schools will partly reopen next week. Norway has removed the ban on travelling to leisure cottages. Norway has provided detailed estimates of the economic and health consequences of different reopening strategies.